Super fees 'not that high' says Financial Services Council

By James Eyers

Updated8 August 2014 — 9:02amfirst published at 9:00am

The head of the Financial Services Council, John Brogden, has accused the Grattan Institute think tank, and Financial System Inquiry chairman David Murray, of sloppy use of data to back their arguments that superannuation fees are too high.

Mr Brogden said critics had not taken into account Australia’s more active management, choice and life insurance options when comparing costs to international pension schemes.

“Focusing on cost alone is both dangerous and lazy.”: Financial Services Council chief John Brogden.

Photo: Andrea Francolini

“Sadly, neither [critics] have used vigorous or accurate data and in the area of international comparisons, both failed to recognise fundamental important, unique and individual features of the Australian superannuation system,” Mr Brogden said.

The lobby group, which is holding its annual conference Cairns, represents retail and wholesale fund managers and super funds.

It said “operating costs and fees appear high by international standards” and “the evidence suggests there is scope to reduce costs and improve after-fee returns”.

Mr Murray’s report cited the Grattan Institute’s Super sting paper that found the benefits of scale over the past decade have been largely offset by higher fund expenses.

Grattan director Jim Minifie told the conference ahead of Mr Brogden’s speech that the “super cost curve has shifted up” and “our fees and expenses are high compared to best practice”.

Mr Brogden said “focusing on cost alone is both dangerous and lazy” and it was disingenuous to compare Australia’s fully funded defined contribution system with unfunded defined-benefit schemes in Europe, which “have totally different asset allocation and return profiles”.

He said the analysis ignored the fact that Australia had a full-service system where investors could build their own investment options and receive life insurance, intra-fund advice and automated contributions and rollovers. He said Grattan’s data was old, and pre-dated the MySuper changes to introduce low-cost super funds.

Deloitte sees scope for lower fees

Research by Deloitte Access Economics released on Wednesday said “it appears that there may be scope for lower fees in the Australian system”.

Deloitte found Australia has relatively high costs, influenced by regulatory requirements. It said further investigation was needed to estimate the impact.

With the Australian Prudential Regulation Authority preparing this month to publish the first of its quarterly reports on the performance and fees of the 120 MySuper products on offer, Mr Brogden said too much focus on fees might reduce superannuation funds’ willingness to invest in long-term assets like infrastructure. “This asset allocation may not be desirable if seen through the [financial system] inquiry’s looking glass,” he said.

“Regular comparisons will drive greater sensitivity to fees and greater competition. It may see increased engagement. However, it is likely to see more switching – and with that a need for greater liquidity – and from that, less capacity for illiquid investments in assets such as infrastructure. It may also drive greater concentration on short-term returns and costs and with them short-term investment ­decisions.”

Mr Brogden, who will stand down from the group in January to head the Australian Institute of Company Directors, said it was “remarkable” the Grattan Institute had concluded that MySuper had already failed. He pointed to research commissioned by his group from Rice Warner, which found that MySuper had reduced fees in default superannuation from 0.92 per cent to 0.73 per cent between 2011 and 2013.

This fee level compared with CalPERS in the US at 0.77 per cent, the Canada Pension Plan at 0.92 per cent, the Government Pension Fund of Norway at 0.74 per cent and the MPF system in Hong Kong at 1.30 per cent.

Rice Warner chief executive Michael Rice told the conference that across all superannuation products, fees had fallen between 2002 and 2013 from 1.37 per cent to 1.12 per cent and with MySuper, this would head below 1 per cent.

The fee debate risked overlooking the level of returns, Mr Brogden said, releasing data from Chant West showing the median return since the start of compulsory superannuation 22 years ago to June this year was 8 per cent a year net of investment fees and tax, or 5.4 per cent above inflation. “Fees are and will always be important,” he said. “But performance is the most important measure to the consumer. At the point of retirement no one is going to thank their fund for the lowest fees and the worst ­performance.”